The Criticality of Integrations in Industry 4.0

Industry 4.0 is about automating intelligent information sharing between systems for better production rates, higher worker efficiency, and lower resource consumption. This explains why the industry 4.0 market is expected to grow at a healthy 16.4% CAGR to constitute a value of $337.10 billion by 2028 - 3X the size measured in 2021.

Yet, despite all the hype surrounding Industry 4.0, the nascent tech faces several hurdles, including a sector-wide problem of data silos and departmental fragmentation, interoperability and scalability issues, and a lack of standardization.

Perhaps the most critical question for Industry 4.0, then, is how to best facilitate interoperability between different systems. After all, the entire purpose of Industry 4.0 is to create a more integrated supply chain with significantly improved economies of scale, better global transportation and logistics, and significant improvements in worker efficiency.

The answer, of course, is integration — specifically, a seamless horizontal and vertical integration across the entire supply chain and within the organization's hierarchy, respectively.

What is Horizontal Integration?

Horizontal integration is akin to cooperation between businesses in the same sector. Fundamentally, horizontal integration is about strategic partnerships, joint ventures, and acquisitions to enable a business to offer more value through an increased breadth of products and services, mainly in the same niches.

When keeping the definition constrained to "production," horizontal integration serves to drive the consolidation of production environments to standardize and combine supply chain management and cross-functional teams to re-evaluate key processes, implement new technologies, and reduce production costs.

The Criticality of Horizontal Integrations
Unifying Procurement

A company's procurement management system is a key component of its corporate data because it houses the master data related to suppliers and the financial and performance metrics that matter to the organization.

By uniting all these disparate systems, a company can better optimize its asset management policies, significantly improve its procurement process, and reduce procurement costs. More profoundly, horizontal integrations help in:

  • Maintaining information flow related to suppliers, inventory, and financial statements
  • Managing relationships and transactions with suppliers
  • Making smart decisions about procurement policies and processes
Increasing Logistics Efficiency

With autonomous technologies supplementing inbound, outbound, and intra-logistics, along with the opportunities they unlock, the importance of horizontal integrations are indisputable. They can help:

  • Reduce warehousing costs
  • Realize the efficiency of new distribution models
  • Interlink all the associated service providers
  • Improve post-shipment inspection processes
Driving Production Environment Management

From monitoring inventory to transporting materials to customer service management, modern production environments require comprehensive data integration and management.

By integrating all the machines, workers, products, and materials across a company's supply chain, the horizontal integrations enable:

  • Enhanced planning and forecasting
  • Optimized machine performance
  • Improved production control
Magnifying Innovation and Engagement

Often, a catch-22 exists between business success and innovation: The path to growth often requires the ability to read and react quickly to changing market conditions, but with a company's capacity to simultaneously manage multiple systems still at an early stage of development, horizontal integration is the only way to:

  • Achieve full operationalization of the company's technical vision
  • Involve every team member to drive knowledge transfer across geographies and departments
What is Vertical Integration?

Vertical integration is the vertical coordination of activities within the existing units. It's about developing standard business practices and processes across the company's different sections to optimize performance. However, the reasoning behind vertical integration is the same as horizontal integration — to reduce interoperability challenges, drive efficiency, and realize economies of scale.

When keeping the definition constrained to Industry 4.0, vertical integration serves to drive the consolidation of production environments with other organizational departments. This helps establish process interconnectivity and enables full integration across mental models, workflows, and data sources.

The Criticality of Vertical Integrations
Driving Top-Down Connectivity of Business Processes and Resources

The conception of the product idea via R&D activities, the subsequent technological intervention, the production of the final product, and the distribution and consumption of these products entails making comprehensive decisions and keeping tabs on the consistency and adherence to the consumer-related product data.

To that end, vertical integrations help with data interconnectivity and increased focus on the product life cycle, which leads to more distinguished control over:

  • The product planning process
  • Overall production costs
  • Deliverable quality
  • Safety and regulatory compliance
Bringing Lean into the Picture

The five lean principles of value identification, value stream, flow optimization, pull creation, and perfection aim to drive efficiencies and eliminate waste. Vertical integrations help companies realize these principles by:

  • Determining the value streams within a product's lifecycle
  • Identifying potential inefficiencies and waste
  • Unifying tools' usage and helping replace legacy systems
  • Monitoring the functional performance
Managing Human Resources

The critical aspect of vertical integration is to minimize the conflicts created by different organizational interests and ensure that each team benefits from the knowledge transfer generated by collaboration. This is made possible through the communication between departments at various levels.

For instance, the administrative and front-office staff can collaborate to improve customer experience through better training; financial departments and sales managers can collaborate to achieve budget goals. Likewise, the R&D and production units can integrate to access the best available technology and put the same to the test.

Managing the Organization

Vertical integration provides a 360-degree view into information flow and inter-departmental relationships, alongside management gaps, performance issues, and points of conflict. From planning to development and marketing, vertical integrations enable companies to:

  • Validate performance indicators against operational goals
  • Harness the potential of company-wide data
  • Monitor the performance of teams and departments
  • Identify the risks that require external interventions for remediation
To Wrap Up

In the era of smart industrialization, vertical and horizontal integrations help companies drive inefficiencies out of the system by creating connective tissue between different business units and departments.

However, the advent of Industry 4.0, in particular, has magnified the criticality of integrations. Now, they no longer seem to be limited to joining processes and resources. Instead, they've become synonymous with a more holistic definition — transcending the conventional systems, branches, and units to get the right data in the right hands at the right time.

Industry 4.0 is, therefore, more about unification than integration — it's about linking chunks of information that otherwise wouldn't talk to each other to form an inseparable, robust, and high-performing ecosystem.